The Tax Hub

Worldwide Tax News

Australia

On 25 November 2016, the Australian Taxation Office (ATO) published a business bulletin entitled Transitional rules: GST on imported services and digital products (previous coverage).

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Overseas businesses may be subject to the transitional rule for goods and services tax (GST) when supplying services or digital products to consumers in Australia.

The transitional rule applies to periodic or progressive supplies that commence before 1 July 2017 and continue after 1 July 2017. Supplies made progressively over a period of time are treated as being supplied continuously over that period.

If you make a supply before 1 July 2017 and the period of the supply extends beyond this, the portion after 1 July 2017 may be subject to GST. The GST is payable in the first tax period after 1 July 2017.

This commonly occurs when selling subscription services to consumers. For example, if you sold a 12-month subscription in September 2016, the portion of the sale from 1 July 2017 is taxable, so you will need to pay GST on the portion of the subscription for July and August 2017.

The changes relate to a broad range of imported products and services, including:

digital products, such as movies, music, apps, games and e-books

services, such as architectural or legal services.

If you meet the registration turnover threshold of A$75,000 and make these supplies, you will be required to register and pay GST.

You can email any questions you have about the transitional rules to AustraliaGST@ato.gov.au.

China

China Announcement Clarifying VAT Rules for Cross Border Services

China's State Administration of Taxation has published Announcement No. 69/2016 and a related policy interpretation on the value added tax (VAT) rules for resident individuals and entities providing certain cross-border services. The announcement clarifies documentation requirements to obtain the VAT exemption for the following services:

For construction services provided overseas, additional documentation proving the services were provided overseas is not required as long as the relevant contract(s) specify the overseas location of the construction services;

For overseas tourist services, immigration (exit) documentation of the service provider (tour guide) or the service recipient (tourist) must be provided;

For international transportation services, a description of the business and a copy of the relevant tax treaty or international transportation agreement must be provided.

The announcement also clarifies certain deductible amounts for VAT purposes:

Singapore

The Inland Revenue Authority of Singapore has published the fifth edition of the e-Tax guide on the Productivity and Innovation Credit (PIC) Scheme. The latest edition incorporates the following Budget 2016 changes:

Expiration of the PIC Scheme in YA 2018;

Reduction in the PIC cash payout rate from 60% to 40% for qualifying expenditure incurred on or after 1 Aug 2016; and

Compulsory e-Filing of PIC cash payout applications with effect from 1 August 2016.

Other amendments include the following:

Removal of information on the PIC bonus that expired after YA 2015;

Removal of the paragraph on the clarification of the basic tool criteria in respect of the case-by-case approval of automation equipment; and

An enhancement to allow companies to make an irrevocable election to claim the Writing-Down Allowance (WDA) over a five, ten or fifteen-year period (on a straight line basis) on capital expenditure incurred in acquiring Intellectual Property Rights - with effect from YA 2017.

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

Gains from the alienation of immovable property situated in the other State;

Gains from alienation of movable property forming part of the business property of a permanent establishment in the other State; and

Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Andorra applies the credit method for the elimination of double taxation, while Liechtenstein applies the exemption with progression method.

Entitlement to Benefits

Article 27 (Entitlement to Benefits) of the treaty provides that a resident of a Contracting State will not receive the benefit of any reduction in or exemption from tax provided for by the treaty if it is reasonable to conclude that the principal purposes was to obtain the benefits of the treaty, unless it is established that granting the benefits would be in accordance with the object and purpose of the relevant provisions of the treaty.

Arbitration Provision

The final protocol to the treaty includes that if Andorra enters into an agreement with another country that includes an arbitration provision, then Andorra and Liechtenstein will begin negotiations for a protocol to insert an arbitration provision into the Andorra-Liechtenstein tax treaty.

Effective Date

The treaty generally applies from 1 January 2017. However, the provisions of Article 25 (Exchange of Information) apply from the date the treaty enters into force, and supersedes the provisions of the 2009 tax information exchange agreement between Andorra and Liechtenstein.

Russia-Singapore

Protocol to Tax Treaty between Russia and Singapore has Entered into Force

The Protocol amending the 2002 income tax treaty between Russia and Singapore entered into force on 25 November 2016. The protocol, signed 17 November 2015, is the first to amend the treaty. The main changes made by the protocol are as follows:

Permanent Establishment

Article 5 (Permanent Establishment) is amended to extend the period for a construction PE from 6 months to 12 months, and the period for a service PE from 3 months within a 12-month period to 183 days within a 12-month period.

Withholding Tax Rates

Article 10 (Dividends) is replaced, including:

A reduction in the withholding tax rate from 5% to 0% if the beneficial owner is the government of the other contracting state;

The removal of the minimum investment of USD 100,000 for the 5% withholding tax rate when directly holding at least 15% of the paying company's capital;

The addition of a specified 10% rate in the case of distributions paid by a real estate investment fund; and

The addition of a main purpose test for the benefits of the Article;

Article 11 (Interest) is replaced, including:

A reduction in the withholding tax rate from 7.5% to 0%; and

The addition of a main purpose test for the benefits of the Article;

Article 12 (Royalties) is amended, including:

A reduction in the withholding tax rate from 7.5% to 5%; and

The addition of a main purpose test for the benefits of the Article.

Limitation on Benefits

Article 22 (Limitation of Benefits) is replaced to provided that the treaty will not apply to any person whose principal goal is to enjoy the benefits of any reduction in or exemption from tax provided by treaty, except when such person is engaged in real business activity.

Exchange of Information

Article 26 (Exchange of Information) is replaces to bring it in line with the OECD standard for information exchange.

Other Changes

Other changes made by the protocol include amendments to Articles 2 (Taxes Covered), 3 (General Definitions), 14 (Independent Personal Services), 18 (Pensions), and 24 (Non-Discrimination), as well as amendments to provisions of the final protocol signed with the 2002 treaty.

Effective Date

The protocol applies in Russia from 1 January 2017. It applies in Singapore from 1 January 2017 in respect of withholding taxes and exchange of information, and from 1 January 2018 in respect of other taxes.

Saint Kitts and Nevi-Untd A Emirates

Tax Treaty between St. Kitts and Nevis and the United Arab Emirates Signed

On 24 November 2016, officials from St. Kitts and Nevis and the United Arab Emirates signed an income tax treaty. The treaty is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.

South Africa-Singapore-Untd A Emirates-Saint Kitts and Nevi-Turks Caics-Uruguay

South Africa Approves Pending Tax Instruments with Singapore, the United Arab Emirates, St. Kitts and Nevis, Turks and Caicos Islands, and Uruguay

On 16 November 2016, the South African parliament approved the pending income tax treaties with Singapore and the United Arab Emirates, and on 17 November 2016, approved the pending tax information exchange agreements with St. Kitts and Nevis, Turks and Caicos Islands, and Uruguay.

The income tax treaty between Singapore and South Africa will enter into force once the ratification instruments are exchanged and once in force and effective will replace the 1996 tax treaty between the two countries (treaty details).

The income tax treaty between South Africa and the United Arab Emirates is the first of its kind between the two countries and will enter into force once the ratification instruments are exchanged (treaty details).

The tax information exchange agreements are the first of their kind between South Africa and the respective countries and will enter into force after the ratification instruments are exchanged.